Workday And Adaptive Insights: A Strong Pairing

Earlier today I opened my laptop for the first time in 10 days (after a glorious family vacation to Yellowstone) – to Workday’s announcement that it is acquiring Adaptive Insights for $1.55 billion (in cash), inclusive of $150 million in unvested equity issued to Adaptive Insights employees. At 13x (+) trailing 12-months revenue of $114 million (33 percent y/y growth, 3,800 customers), investors Bessemer, Norwest, Salesforce, JMI and others will no doubt be pleased with their return on the $176 million invested across several venture rounds.

While the price tag might appear to be high – more than double what Adaptive Insights impending IPO was valued at – what is less surprising is that these two companies came together in the first place. The Workday leadership team has long known that powerful cloud-based financial planning, budgeting, forecasting, consolidation and modeling software is the most important beachhead to successfully penetrate the Office of the CFO. And Adaptive Insights is a clear leader in this category.

In fact, rumors have long circulated that Workday danced with several companies – including Anaplan, Tidemark and Adaptive – prior to announcing its own Workday Planning offering in 2015. Today that product has more than 250 customers. However, all but a handful are squarely focused around Workforce Planning, as Workday has not yet delivered competitive feature / functionality in the financial planning and modeling arena.

Don’t Derail the Train

Given this, the acquisition should be a win-win for customers. As Workday CEO Aneel Bhusri explained in the investor call earlier this morning, Adaptive Insights will be largely left alone to run as a stand-alone business. The good news is that Adaptive Insights has been integrated with Workday since 2015 – although Workday will move quickly to “harmonize” the Adaptive Insights offering, leveraging Workday’s UI, security and meta-data models. How this ultimately plays out within the context of Workday’s core mantra of “the power of one” is still unknown – but it would not be surprising to see a highly coupled model emerge, given the architectures currently in place. Workday Planning will become the de facto offering for Workforce Planning, whereas Adaptive Insights will become the core offering for both Finance and Sales planning (and any other functional domain it may pursue).

While Adaptive Insights began as a channel-driven mid-market focused player, it has been investing significantly over the past several years to both better scale and support large-enterprise customers (see Adaptive Insights: Poised for Continued Growth, 13Feb2018). In fact, 23 percent of the business now comes from Enterprise customers – which is up substantially over the past three years. With an overlap of only 30-40 customers, the enterprise-focused Workday salesforce should be able to quickly monetize the acquisition by upselling the Adaptive Insights solution into the 450+ Financial Management customers it already has (60 percent of whom are now live) – let alone leveraging it as a lead value proposition to drive new customer acquisition with large enterprise Finance prospects, and cross-sell to Workday’s existing 2,000+ HCM clients.

Given Adaptive Insights heritage, the acquisition should also help Workday evolve its nascent plans to go down market with targeted / packaged HCM offerings that appeal to mid-market customers. What is less clear is how Adaptive Insights highly tuned channel strategy will play out in the new scenario, and how many of its mid-market customers will flee over time that are hooked to other cloud-based systems of record (e.g., NetSuite).

Change in M&A Strategy

While the acquisition is the largest Workday has undertaken to date, the announcement clearly reflects a fundamental change in Workday’s M&A strategy. What the announcement suggests is that unlike many of its previous acquisitions that have focused on enabling technologies / capabilities or to acquire talent / teams (e.g., Rallyteam, SkipFlag, Platfora, Gridcraft, CapeClear) – Workday is now beginning to look seriously at a broad range of adjacencies that can help it maintain its rapid growth clip.

While it would be surprising to see Workday pursue Manufacturing in the near-to-midterm, my bet is that Supply Chain and a deeper / broader view of Procurement could be on the table over the next 12-to-24 months – both sectors that play well in the cloud, and that are ripe for further consolidation. As Bhusri emphasized, however, acquisitions of this type need to highly strategic for the company, and bring with them complimentary company values and culture.

While advanced analytics and data are clearly at the center of its evolving vision, it was very clear from the recent Analyst Summit I attended that Workday will continue to put the pedal to the metal around its core HCM and Finance offerings. At this point, HCM is highly profitable with an industry-leading position among enterprise customers. The acquisition of Adaptive Insights only strengthens and accelerates its market momentum in Finance – with a well-oiled solution that should provide significant cross-sell opportunity.

Net / Net: this acquisition will clearly help Workday accelerate its roadmap by 2+ years, and deliver significant value to customers. All-in-all, this should be exciting to see play out over the next 24 months. What will determine its ultimate success will be how well the go-to-market synergies are exploited / monetized, not only among large enterprise customers but in the mid-market as well.

Adaptive Insights: Poised for Continued Growth

In mid-January 2018, I had the opportunity to catch up with Adaptive Insights’ VP of Product Marketing, who provided an informed update on the firm. Having followed Adaptive Insights for more than 10 years, I was gratified to learn that it had reached two important milestones by year-end 2017 – surpassing both the $100 million USD revenue threshold and $100 million USD in annual recurring subscriptions under contract. Both of these are visible markers that often signal an IPO on the horizon – which I would not be surprised to see by mid-to-late 2018, should the current window remain open. With more than 3,700 customers, 30 percent top-line growth, a rebuilt and strengthened senior management team (built to further scale the business), and an expanded set of beachhead solutions beyond the Office of the CFO (and the Financial Planning / Performance Management / Budgeting / Forecasting / Reporting market), Adaptive Insights is poised to enter its next phase of growth.

While hinted at in our call last month, Adaptive Insights yesterday announced the launch of its Business Planning Cloud, the latest repositioning of its core planning platform – as well as the first of what will likely be several new functional solutions, Adaptive Insights for Sales. It was clear from the recent briefing (and a short follow-up call again yesterday morning) that Adaptive Insights has continued to invest in the platform – putting differentiated product “meat” behind its marketing mantra of “Easy, Powerful and Fast.”

While well known for its ease-of-use, highly collaborative approach to planning and strong data discovery / visualization capabilities (via dashboards) – especially for its primary mid-market target audience – Adaptive Insights has scaled-up its core planning platform to support larger enterprise requirements. In fact, I was not surprised to learn that 24 percent of its business is already with enterprise customers, although that figure is likely to grow substantially over the next few years as their sweet spot expands to firms with as many as 10,000 employees.

Built from the ground up as a multi-tenant and in-memory offering, its core multidimensional modeling, reporting and analytics platform can now scale to support the needs of large and complex models (and enterprises). This applies to the number of transactions records / users / accounts / what-if versions / scenarios or dimensions in their multi-dimensional cubes.

The Adaptive Insights for Sales solution appear to be the first of several new functionally-targeted solutions on the drawing board at it formalizes its vision of serving other functional domains beyond the Office of the CFO. Specifically targeting the sales operations function, the offering focuses on capacity and compensation planning, as well as quota and territory modeling and management. It is easy to see the significant opportunity in front of them – although they will no doubt face stiff competition, from specialists such as Ops Panda, as well as broader competitors such as Anaplan.

While having six live customers is a great start, this is a new and different buying center for the firm, and will no doubt take considerable time to create and capture significant demand. Helping to propel growth – of both large enterprise accounts and its expanded bag of functionally-targeted solutions – is a direct sales force launched mid-year 2017 (which now has 8 reps). While Adaptive Insights estimates that 50 percent of its recent deal activity has been touched by its 200+ partners, its growing direct sales force will no doubt lead the charge as it moves up market and creates larger and larger (multi-function) planning relationships.

Other planning-intensive areas that Adaptive Insights has already had some success include Workforce Planning, Project Planning and Operations Planning. Which one leads the way to become the next (functional) solution beachhead is not yet clear. However, what is clear is that Adaptive Insights will increasingly pursue a land-and-expand go-to-market model.

Key Takeaways

At this point, Adaptive Insights biggest challenges appear to be execution related, as the market opportunity for cloud-based planning tools is robust and growing. At the same time, the space is ripe with both traditional competitors (e.g., Oracle, Anaplan, Host Analytics, IBM, SAP), as well as a bevy of emerging players mostly targeting specific niche markets. It will be interesting to follow how it plays out over time among Adaptive Insights’ large installed base of NetSuite customers, after its acquisition by Oracle a little more than a year ago.

We like Adaptive Insights move beyond Finance, and beyond the mid-market, as it sets itself up to grow into a sizable platform-based business planning player. Many of the core user benefits that today brings it to the table in Finance will likewise play elsewhere – but it will take time and substantial sales and marketing investment / muscle to establish the brand beyond its well-known core Financial Planning beachhead. Continuing to put the pedal-to-the-medal on its international expansion and vertical offerings will also be critical for success.

If you are not already subscribed to my blog, I encourage you to do so. After taking a couple of months off over the winter, I’m gearing up to more regularly publish again. This will include highlights from some new buyer demand research I have been conducting related to the digital journey, and the AI-driven future that is in front of us. Lots of interesting new insight on the horizon.

Bill McNee
February 13, 2018

Authored by on March 21, 2019 at http://mcneeassociates.com/tag/planning/